This chapter is from the book

Chapter 1: The Market at the Bottom of the Pyramid

Turn on your television and you will see calls for money to help the world’s 4 billion poor—people who live on far less than $2 a day. In fact, the cry is so constant and
the need so chronic that the tendency for many people is to tune out these
images as well as the message. Even those who do hear and heed the cry are
limited in what they can accomplish. For more than 50 years, the World Bank,
donor nations, various aid agencies, national governments, and, lately, civil
society organizations have all fought the good fight, but have not eradicated
poverty. The adoption of the Millennium Development Goals (MDG) by the United
Nations only underscores that reality; as we enter the 21st century, poverty—and
the disenfranchisement that accompanies it—remains one of the world’s
most daunting problems.

The purpose of this book is to change that familiar image on TV. It is to
illustrate that the typical pictures of poverty mask the fact that the very
poor represent resilient entrepreneurs and value-conscious consumers. What
is needed is a better approach to help the poor, an approach that involves
partnering with them to innovate and achieve sustainable win–win scenarios
where the poor are actively engaged and, at the same time, the companies providing
products and services to them are profitable. This collaboration between
the poor, civil society organizations, governments, and large firms can create
the largest and fastest growing markets in the world. Large-scale and wide-spread
entrepreneurship is at the heart of the solution to poverty. Such an approach
exists and has, in several instances, gone well past the idea stage as private
enterprises, both large and small, have begun to successfully build markets
at the bottom of the pyramid (BOP) as a way of eradicating poverty.

The economic pyramid of the world is shown in Figure
1.1. As we can see, more
than 4 billion constitute the BOP. These are the people who are the subject
matter of this book.

THE BOTTOM OF THE PYRAMID (BOP)

The distribution of wealth and the capacity to generate incomes in the world
can be captured in the form of an economic pyramid. At the top of the pyramid
are the wealthy, with numerous opportunities for generating high levels of
income. More than 4 billion people live at the BOP on less than $2 per day. They
are the subject matter of this book.

As you turn these pages, you will discover companies fighting disease with
educational campaigns and innovative products. There are organizations helping
the handicapped walk and helping subsistence farmers check commodity prices and
connect with the rest of the world. There are banks adapting to the financial
needs of the poor, power companies reaching out to meet energy needs, and
construction companies doing what they can to house the poor in affordable ways
that allow for pride. There are chains of stores tailored to understand the
needs of the poor and to make products available to them.

The strength of these innovative approaches, as you will come to
appreciate, is that they tend to create opportunities for the poor by offering
them choices and encouraging self-esteem. Entrepreneurial solutions
such as these place a minimal financial burden on the developing countries in
which they occur.

To begin to understand how all of this is remotely possible, we need to start
with some basic assumptions:

First, while cases certainly can be found of large firms and
multinational corporations (MNCs) that may have undermined the efforts of the
poor to build their livelihoods, the greatest harm they might have done to the
poor is to ignore them altogether. The poor cannot participate in the benefits
of globalization without an active engagement and without access to products and
services that represent global quality standards. They need to be exposed to the
range and variety of opportunities that inclusive globalization can provide. The
poor represent a "latent market" for goods and services. Active
engagement of private enterprises at the BOP is a critical element in creating
inclusive capitalism, as private-sector competition for this market will foster
attention to the poor as consumers. It will create choices for them. They do not
have to depend only on what is available in their villages. If large firms
approach this market with the BOP consumers’ interests at heart, it can
also lead to significant growth and profits for them. These characteristics of a
market economy, new to the BOP, can facilitate dramatic change at the BOP. Free
and transparent private-sector competition, unlike local village and shanty-town
monopolies controlled by local slum lords, can transform the "poor" into
consumers (as we illustrate with examples). Poverty alleviation will become a
business development task shared among the large private sector firms and local
BOP entrepreneurs.

Second, the BOP, as a market, provides a new growth opportunity
for the private sector and a forum for innovations. Old and tired solutions
cannot create markets at the BOP.

Third, BOP markets must become an integral part of the work of the
private sector. They must become part of the firms’ core businesses; they
cannot merely be relegated to the realm of corporate social responsibility (CSR)
initiatives. Successfully creating BOP markets involves change in the
functioning of MNCs as much as it changes the functioning of developing
countries. BOP markets must become integral to the success of the firm in order
to command senior management attention and sustained resource allocation.

There is significant untapped opportunity for value creation (for BOP
consumers, shareholders, and employees) that is latent in the BOP market. These
markets have remained "invisible" for too long.

It is natural for you to ask this: If all of this is so obvious, why has this
not yet occurred?